When Professional Guidance Pays Off

Jason Stipp: I'm Jason Stipp for Morningstar. We have an active group of do-it-yourself investors on Morningstar.com, but even the most self-reliant will sometimes need to stop and ask for directions. So when should you seek financial help? Here to offer some tips is Morningstar's Christine Benz, our director of personal finance.

Thanks for being here, Christine.

Christine Benz: Jason, great to be here.

Stipp: You say that there are some people who turn over all their money to an advisor. There are some people who do everything themselves, but you don't have to be in one of those polar camps. There is some middle ground there.

Benz: There is, and specifically, I think you might look for an advisor who charges either on a per-project basis--so, they might say, "Well for $2,000 I'll do your retirement plan"--or on an hourly basis. And I think that can represent a really nice middle ground for a lot of people. So, even if you are extremely in the DIY camp, there may be points in your life where you do need just kind of an extra set of eyes or some sort of specific help with a specific problem.

Stipp: And there actually are some well-known financial advisors that do use that hourly model, which can be a good business model for cases like that.

Benz: It definitely can. It will tend to be more cost-effective than having someone take a percentage of your assets on an annual basis. Again, there are some people who need that kind of comprehensive help, but if you're someone who just needs kind of a check-up or a second set of eyes, that hourly model will be more cost effective. One firm I often recommend--and I have no vested interest in them and certainly can't vouch for the quality of each of the planners--is Garrett Financial. That is a national network of advisors who nearly all work on an hourly basis.

Stipp: Given that there are some middle-ground options for folks to seek financial advice for specific things, you have a list of some areas that you really might want to put on the short list of when you could reach out to an advisor and it could really help out your financial plan. The first one is the all-important aspect of getting ready to retire.

Benz: Absolutely. I talk to a lot of retirees, Jason, and what they say is that it's really exhilarating, but it's also scary because they've had this lifetime of accumulating, where they're building, building, building their savings and now they're looking at a day where they may need to begin drawing down those assets. So, I think getting another set of eyes on your plan on the assumptions you're making about it, on your asset allocation, your withdrawal rate, can be really, really comforting at that particular time. Just have someone to kind of corroborate what you've done, or maybe poke holes where they need to be poked, just to have someone to take another look at what you're doing.

Stipp: You've written a lot about this, and I know that things do tend to get a little bit more complicated when you enter those golden years. So that's definitely an important one.

Number two is if you have a spouse who maybe hasn't been as involved in the financial picture as you have, that could be a good time that a planner can really help ease a transition should one need to occur.

Benz: Absolutely. And this is very, very common where you've got one spouse who is the highly engaged person in the relationship in terms of the finances, and then you've got another spouse who just isn't into it at all. In that case, I think one of the best things you can do for the disinterested spouse is to start laying some groundwork in terms of finding that financial planner because you do need to know what to ask when you're searching for financial planners or financial help.

So, I think unfortunately one thing that disinterested spouses sometimes fall into when they are forced to start taking control of the family financial plan is that they just rely on referrals from people they know. They probably don't know the right questions to ask to do their due diligence. I say do some of that due diligence for your spouse and start doing that fact-finding for someone who is ready to step in when and if he or she may need to do so.

Stipp: And you mentioned before that a planner can help you with your asset allocation when you're entering retirement. Asset location, where some of those assets are housed, is important for taxes, but also some investments have special tax considerations. So, having some time with the tax specialist can really pay off.

Benz: Absolutely. I think that, that is a great strategy. There are a couple of specific areas, flashpoints I would call them, where someone might need specific tax help. Any time you're looking at substantial stakes in company stock or certainly company stock options, there can be some strange tax permutations related to those types of securities. So, you want to make sure that you are thinking through them.

Inherited IRAs, that's another very complicated area. I've written some articles on this topic, and it's one of those topics that you really have to know what you're doing. If you don't now, I say get some tax help. So, those would be a couple of the key areas.

Another thing is in retirement, seek out some tax help about where to go for your withdrawals on a year-by-year basis. A qualified accountant can really earn his or her keep many times over by pointing you in the right places to go for cash, trying to keep your overall tax bracket down in each year.

Stipp: Related to taxes, but even more broadly, is estate planning, so making sure that you have all your estate in a good place so that your heirs won't be taxed unnecessarily. That is a good time to seek out some professional advice?

Benz: I think so. There are increasingly off-the-shelf software programs or online programs that you can use to create an estate plan, but when you think about it most families have something a little unusual going on. Maybe it's a spendthrift child, maybe a special-needs child, or maybe a same-sex couple. There are any number of different variations in families, blended families certainly.

So, it helps to have that qualified estate-planning attorney asking you some questions about your situation and helping you identify areas where it might be different, helping you craft a plan that really makes sense given your own family and your own needs. And incidentally, estate-planning attorneys can also help with things like beneficiary designations. One thing a lot of people don't know is that it rarely makes sense, if ever, to leave assets to a minor child. An estate-planning attorney can help coach you out of making bad decisions like that.

Stipp: We are certainly big proponents of DIY investing, but part of being self-reliant is also knowing when it really pays off to ask for help. So, thanks for those tips today.

You're likely to see red ink in bonds and still-strong year-to-date performance in stocks when you check your portfolio after a rocky second quarter. Our director of personal finance offers tips for what to do next.

This article represents opinions of the author and not those of his firm and are subject to change from time to time and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment strategy. The information contained here has been obtained from ...